Universa Investments LP, the Santa Monica, California-based firm where Taleb is an adviser, has about $1 billion in accounts managed to hedge clients against big moves in financial markets. Returns for the year through Oct. 10 ranged as high as 110 percent, according to investor documents. The Standard & Poor's 500 Index lost 39 percent in the same period.

“I am very sad to be vindicated,” Taleb said today in an interview in London. “I don't care about the money. We're proud we protected our investors.”

Taleb's book argues that history is littered with high- impact rare events known in quantitative finance as “fat tails.” As the founder of New York-based Empirica LLC, a hedge- fund firm he ran for six years before closing it in 2004, Taleb built a strategy based on options trading to bullet-proof investors from market blowups while profiting from big rallies.

Mark Spitznagel, Taleb's former trading partner, opened Universa last year using some of the same strategies they'd run since 1999. Pallop Angsupun manages the Black Swan Protection Protocol for clients and is overseen by Taleb and Spitznagel, Universa's chief investment officer.

“The Black Swan Protection Protocol is designed to break even 90 to 95 percent of the time,” Spitznagel said. “We happen to be in that other 5 to 10 percent environment.”

Thursday, October 16, 2008

Run on Russian bank heightens fears: “Globex on Wednesday banned depositors from withdrawing their money as confidence in the Russian banking system began to show signs of ­evaporating.

Globex, a mid-sized retail bank with assets of $4bn (€2.95bn, £2.32bn), is the first Russian bank to experience a run on deposits during the crisis. It lost 13 per cent of its deposits last month, according to Maxim Raskosnov, an analyst at Renaissance capital, and a further 15 per cent this month according to Emilya Alieva, Globex’s vice-president.

At least a dozen other Russian banks have reported a sharp rise in withdrawals and account closures.

An economist with a leading western bank in Moscow said Globex was probably the first in what could be a number of bank panics, if the government did not take concerted action soon. “I think there are a large number of small and medium sized banks that are in the same situation,” she said.

Despite a Kremlin promise of $200bn in relief funds – $87bn this week – the fall-out of a stock market plunge and the global credit crunch appears to be worse than anticipated, analysts say.

So far, the crunch has not affected the living standards of ordinary Russians, but a rash of bank failures could.

Banks across Russia have faced a rise in outflows as depositors have begun to lose trust in all but the biggest state banks, VTB and Sberbank, which have received most of the government’s liquidity support.

Tatyana Sadovskaya, the director of a branch of Khnati Mansisk Bank in the city of Nizhnevartovsk, on Wednesday told Interfax news agency that in response to rumours of her bank’s insolvency: “People have formed long lines at cashiers and at bankomats, people are taking their deposits and closing their accounts.”

Natalia Elisseva, vice-president for financial development at the Bank Nizhni Novgorod, based in the city of the same name, said the number of clients closing accounts had risen. “If there is something that can sink the banks, it is panic amongst the population . . . If there is a panic, not one bank will stand, regardless of state support.”

Mr Raskosnov said Globex was in an especially difficult situation, as a high concentration of its lending was in property, one of the sectors most under pressure from the credit crunch. He said the bank was also not rated by a leading credit rating agency, the prerequisite for central bank funding.

Globex confirmed that the ban on withdrawals had been in effect since Tuesday and blamed “demand from depositors, many of whom explained their wish to transfer their money to VTB or Sberbank”.

So far in the past two months three Russian banks have been forced into mergers as a result of the credit crisis, and analysts expect more consolidation.

Russia’s central bank made no public mention of Globex crisis, sparking criticism from ­analysts.

Alexander Khandruyev, head of the association of regional banks and former deputy central banker, called on the central bank to act immediately to allay depositors’ fears. The central bank, he said, “needs to put out the fire now and sort out who is guilty later”.

“They have delayed and delayed, and it only means the longer they leave it the more it is going to cost when they do have to rescue the banks,” he said. “If another day goes by it could happen in other banks. I don’t know what the central bank is thinking of.”

The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars declined for a fourth day, sliding 5 basis points to 4.50 percent today, the British Bankers' Association said. The overnight rate fell 20 basis points to 1.94 percent, the lowest level since November 2004. Asian interbank rates also dropped.

The declines signal as much as $3 trillion of emergency funds provided by governments to tackle a collapse in trust between banks may be working. Libor is used to determine rates on $360 trillion of financial products worldwide, from mortgages to company loans, according to the BBA.”

Wednesday, October 15, 2008

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So, if you blow you trading account, lose your house and shrivel up your 401k, don't even worry about it you can work out here for FREE.

“Letters of credit and the credit lines for trade currently are frozen. Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay.” -Khalid Hashim, managing director of Precious Shipping, Thailand's second-largest shipping company

Yesterday in Baltic Dry, Amazing Plunge, I marveled at the absolute collapse of the index and also thought that there was no way demand for dry commodities had dropped so significantly so quickly.

The real story is that credit has dried up and letters of credit aren’t being honored so the stuff quite simply isn’t shipped. This has caused shipping rates as measured by the index to cliff dive.

There is a very real risk that various economies will start to face stresses in this time of ‘Just In Time Delivery’ as very small stock piles vital commodities quickly get vacuumed up by normal industrial demand.

The credit crunch is everywhere...

Watch the Baltic Dry Index for signs of life. This will help determine if and when the credit freeze starts to thaw.

The lack of letters of credit, in which banks guarantee payment for merchandise, could become a "big issue'' for world trade, according to Klaus Nyborg, Deputy Chief Executive Officer at Pacific Basin. Tighter credit has contributed to this year's 80 percent drop in the Baltic Dry Index, a measure of commodities-shipping costs. About 90 percent of world trade moves by sea.

"This can have a significant effect on demand because you won't see the same volume of cargo moved,'' Harold L. Malone III, senior vice president at Jefferies & Co., said at a Marine Money conference in Singapore. "You have to figure out other ways to get trade done.''

Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf collapsed this month with debts equivalent to as much as 12 times the size of Iceland's economy. The three banks accounted for about 76 percent of the ICEX 15 Index's value prior to the nationalization.

The OMX Iceland 15 Index fell 2,317.23, or 77 percent, to 687.39 as of 11:48 a.m. local time. Five of the 13 other stocks in the index didn't trade, while the five that did account for about 7.1 percent of the index's value.

Trading was halted since Oct. 9 after the measure lost 30 percent in nine days as the country's financial system collapsed. Iceland's delegation started talks in Moscow today to secure an emergency loan of as much as 4 billion euros ($5.47 billion) from Russia.

The country should seek aid from the IMF and later apply for European Union membership and adopt the euro, Foreign Minister Ingibjorg Solrun Gisladottir wrote in Morgunbladid on Oct. 13.

“Added on the open. HOLY CRAP! I left a stain in my pants, but I hit the “BUYBUYBUY” button.

Closed my eyes, pulled all stops and waited.

The cheering in the pits is wild.”

Some of the fills in the panic dump were ridiculous. QLD @ $25.88, SSO @ $30.90.

I went into the weekend all out long and without hedges. Granted, I drank a helluva lot more than usual all Thanksgiving weekend and I was more than a little nervous. I had to ‘sneak away’ from family events on Monday quite a few times to check the markets, but I stayed long.

Monday was the FIRST major accumulation day in a long long time. This bounce is for real.

This should not come as a surprise after about SIX major distribution days almost back to back. The weak hands have been flushed out. The forced, panic liquidation has taken place. The way is clear for a 'rip your face off' rally'.

Prices could easily bounce to the 50% and even 61% Fibonacci retracement levels before backing off.

I expect volatility to fall from nosebleed levels 'back' to the low low level of 30. (Haha.)

All risky assets will rally wildly while this occurs.

I will be scaling out of one quarter of my long positions on the open today. I’m thinking about thirty minutes after the open as the retails guys come in on the back of yesterday’s rally.

Disclaimer

The Financial Ninja is a collection of my thoughts and opinions about current economic and market conditions. These are not buy and sell recommendations. Use your head and do your own research. This is a forum to stimulate discussion and debate.

About Me

I started trading during the tech bubble when I was still in high school. My trading has financed my education and I have since completed a BA in Economics and an MBA with a concentration in Finance. I have worked as both a proprietary equity and fixed income derivatives trader.